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Published June 28, 2021
Updated July 15, 2021

How Credit Card Fraud Happens and How to Prevent It

Zero liability policies might minimize the impact, but falling victim to credit card fraud is still a huge hassle. The best way to protect yourself from criminals is by learning how to prevent credit card fraud.

It happened a week ago.

I went to check out of Uber Eats and my credit card was declined. Weird, I thought, before switching credit cards and putting it out of my mind. But then, I bought comics and the merchant called me back to say my credit card was declined again. I knew I had credit available, so I called my bank to find out what was happening.

It turned out my bank was waiting for my call. Someone had tried to charge $0.80 to my card (a card test to see if my credit card number was valid) before purchasing $500 in cell phone plans and merchandise at Fido. Thankfully, my bank intervened, cancelling the transactions before they were posted and issuing me a new credit card.

Still, I was one of more than 45,000 Canadians who fall victim to fraud each year, losing nearly $100 million combined. How did this happen?

How credit card fraud happens

Credit card fraud can happen if your card is lost or stolen and someone picks it up and goes on a spending spree. But there are several other ways a fraudster can obtain your credit card information, including the following:

  • Phishing. Fraudsters pretend to represent businesses you deal with and request your credit card information via email or phone.
  • Skimming. When criminals install a dummy card reader over a legitimate card reader, they can copy your credit card details to their computer when you swipe your card. (It’s also possible to skim contactless-enabled cards using an RFID reader.)
  • Hacking. Fraudsters can hack into your computer or one of your online accounts to steal your credit card information. They can also purchase credit card numbers released to the dark web following a corporate data breach.

That last one was probably how my card was compromised. If I type my e-mail address into Haveibeenpwned.com, it shows me I have potentially been a victim of 13 corporate data breaches where my account information was possibly compromised. I am not alone.

In November 2019— one year after data breach reporting from businesses became mandatory— the Office of the Privacy Commissioner of Canada found that more than 28 million Canadians were affected by a data breach in the previous 12 months. Knowing that, how do we protect ourselves?

» MORE: Common scams to watch out for in Canada

How to prevent credit card fraud

Since it’s difficult to remember passwords, many of us use the same password across multiple accounts. This means that if your credentials ever get compromised, that captured data will likely still work, even if it comes from an old and outdated account. If you want to prevent credit card fraud, this is an absolute no-no. Here’s what you can do to thwart the fraudsters, both online and off.

Enable two-factor authentication whenever possible

Two-factor authentication requires an additional step along with typing in your username and password (which you should change at least once a year on all accounts using special characters). Usually, this extra step involves entering a code that you receive by text or phone each time you log into the online account.

Use a password manager

You only have to remember one master password to unlock your password manager, which then generates and remembers a complex, hard-to-break, distinct encrypted password for all your other online accounts. Most password managers don’t cost more than a cup of coffee ($5) per month, and many come with a free trial.

Don’t use a credit card over public Wi-Fi

Wait for a secure connection for a credit card or banking transactions, and only trust websites with a lock in the browser or an SSL security certificate that has “https://” at the beginning to ensure a secure connection for sensitive data.

Guard your credit card information carefully

Don’t provide your credit card number via email and if you use it over the phone, make sure you initiated the call.

Review your credit card statements

It’s important to check your credit card statements each month with an eye to suspicious activity. If you see a charge you don’t recognize, contact your provider.

» LEARN: How to prevent identity theft

What to do if you’re a victim

If you’re victimized, get a new credit card and cancel the old one. Place an alert with all credit bureaus and on all bank accounts. Change all the passwords associated with your credit card first, including online banking and any accounts recording fraudulent purchases.

There’s more you can do, but it’s not the end of the world if you are a victim. Visa, Mastercard, American Express and Interac have zero liability policies when purchases are found to be fraudulent.

» MORE: How debit cards compare to credit cards

About the Author

Aaron Broverman
Aaron Broverman

Aaron Broverman has been a personal finance journalist for over a decade. His work has appeared on such outlets as Yahoo Finance Canada, Bankrate and Creditcards.com, Money Under 30, Wealth Rocket, CBC.ca and Greedyrates.ca. This former Toronto transplant via Vancouver now lives in Waterloo with his wife and son. When he’s not writing about your money and how to use it, you’ll find his nose in a comic book relating to the work life balance of Spider-Man and the clumsy brute strength of The Hulk.

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